Should you cut your B2B marketing budget in an economic downturn?

When a downturn strikes, businesses often cut their marketing budget. But should they?

In any period of economic uncertainty, such as a recession or indeed a global pandemic, a common instinct is to slash marketing spend. For B2B brands with difficult budgeting decisions to make, this instinct – or reaction – is perhaps understandable. But is it the right one?

According to the evidence, no, it’s not. 

Research shows businesses that cut their marketing budget during an economic downturn typically see a decline in sales and market share. In fact, the businesses that tend to thrive post-downturn reduce costs by boosting operational efficiency while continuing to invest the same amount, if not more, on marketing. Maintaining healthy marketing investment at a time when your competitors may be cutting back could be key to gaining greater market share, which ultimately drives sales and revenue.   

Marketing isn’t a ‘nice to have’ investment; it can be essential to a brand’s survival, especially in a downturn. 

So, what should B2B brands do? 

If you need to cut marketing costs, research shows it’s best to strike a balance between strategic cost-cutting and spending, and reallocating resources to achieve an optimal return on marketing spend.

A Harvard Business Review study, which explores the strategies taken by companies during periods of recession between 1980 and 2002, shows the companies most likely to survive an economic downturn achieved a balance between selective cost-cutting to stay afloat in the short term and investing in activities like marketing to create new business opportunities and support growth in the long term.

So rather than slashing marketing investment severely, B2B brands could re-evaluate and streamline their marketing activities to boost cost efficiency and drive higher return on investment (ROI). This, in turn, could help you maintain market share and generate sales leads.

The study further revealed that companies that focused solely on cutting costs, or were too aggressive in cutting costs, or too quick to reduce the number of employees were more likely to lose out during a downturn.

Downturn-proof marketing strategies are balanced 

Gulati et al. highlights financial performance data that shows a balanced approach is best during periods of economic uncertainty. This includes adopting strategies such as:

• Improving operational efficiency – this could mean outsourcing your marketing and focusing spend on high ROI campaigns with measurable results. Content marketing via marketing automation, social media and other digital platforms provide a cost-effective way of engaging with your audience during a downturn.

• Investing in new markets – look to new markets that will deliver a better return on your marketing investment instead of continuing to focus on markets that only offer a marginal return. Don’t be afraid to explore opportunities that may fall outside your comfort zone. 

Investing in marketing while making changes to boost operational efficiency may prove crucial in helping B2B brands continue to generate new business through this current period of economic uncertainty. If brands make such changes during pandemic-induced sales shortfalls, it may strengthen their ability to prosper during future periods of uncertainty. 

Marketing during a downturn drives growth after economic recovery

According to research from global consultancy firm Bain & Company, companies most prepared for periods of economic uncertainty tend to be the ‘winners’ both during and after downturns. The research, which looked at around 3,900 companies globally, found the winners grew at an annual rate of 17% during a downturn compared to 0% growth among the ‘losers’. And in the period following past downturns, the winners grew by an average 13% annually, while the losers grew by just 1%.

The winners had greater success partly because they simplified processes to cut costs, and this approach works as well with your marketing as it does other parts of your business, such as operations. For example, if you outsource your marketing to an agency, you can be selective in how and where you spend. You can also implement efficient digital processes, such as marketing automation, to further save on time and costs. 

By focusing on targeted digital marketing strategies that drive lead generation while streamlining operations and continuing to invest for growth, B2B brands may be better placed to withstand this and other periods of economic uncertainty, and more likely to emerge stronger on the other side. 

References:

1. Hbs.edu. 2021. Roaring Out Of Recession – Article – Faculty & Research – Harvard Business School. [Accessed 6 January 2021].
2. Chastain, C., 2021. Strategic Planning And The Recession. [online] Core.ac.uk. [Accessed 6 January 2021].
3. Bain & Company. Companies well-prepared for an economic downturn grew at 17 percent compared to zero growth among the losers. May 16, 2019. [Accessed 6 January 2021].

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